Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mountain outerwear Company manufactures three sizes of extreme weather coats small (S), medium (M) and large (L). The income statement has consistently indicated a net

image text in transcribed

Mountain outerwear Company manufactures three sizes of extreme weather coats small (S), medium (M) and large (L). The income statement has consistently indicated a net loss for the M size, and reduce total output accordingly, or (3) discontinue size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. lf Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by $64,000 and $44, 800 respectively. If Proposal 3 is selected, is a anticipated that an additional annual expenditure of $48,000 for the rental of additional warehouse space would yield an increase of 130% in size S sales volume. It is also assumed that the increased production of size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 2010, is as follows: Prepare an income statement for the past year in the variable costing format. Use the following headings: Data for each style should be reported through contribution margin The fixed co should be deducted from the total contribution margin, as reported in the "Total" column, to determine income from operations. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual Income from operations would be reduced below its present level if Proposal 2 is accepted. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Use the following headings: Total Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the expenditure of $48,000 for the rental of additional warehouse space can be added to the fixed operating expenses. By how much would total annual income increase above its present level if Proposal 3 is accepted? Explain

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Todays Mood Is Sponsored By Auditing

Authors: Ruby Publishing

1st Edition

B08BG52SST, 979-8655512771

More Books

Students also viewed these Accounting questions